Retail Stock Sears (SHLD) Struggles to Reinvent Itself

Advertisement

Poor Sears. Sears Holdings Corp. (SHLD), the retail stock behind the largest U.S. department-store chain Sears and discount retailer Kmart, peaked at nearly $200 a share in 2007. SHLD stock hasn’t come anywhere close to that number in the last few years. More recently, the company has only had one quarterly profit in the last four reporting periods — including an unexpected loss in the first quarter of 2010.

There’s little wonder Sears stock has struggled recently, as big markdowns on pricey appliances like its Kenmore line have been part of an effort to connect with consumers. While sales haven’t really budged, margins have dropped through the floor – narrowing to a slim to 28.2% in the most recent quarter, from an already anemic 28.6% the year before.

So what’s Sears’ solution to this mess? A series of ill advised gambits that include giving up exclusivity on its iconic Craftsman tool line, a goofy online marketplace crowded with 12 million products and a home delivery scheme that hearkens back to the Webvan failure of the dot com bust. Here are the details:

ACE Hardware to Sell Craftsman Line: The retail cooperative ACE is now pushing Sears’ craftsman line of tools. At first blush you would think the move wise, since a quality product with bigger exposure will naturally do well. However, Sears is up to its eyeballs paying for the retail space in malls and outlets around the country and letting ACE ring up those sales – and take a cut of the profits – may not be for the best. Besides, Sears had a captive audience with this iconic brand and now it’s allowing shoppers to pick up the tools elsewhere instead of strolling the aisles and perhaps picking up a few extra items. This plan could easily backfire and do more harm than good.

More Products and a PersonalShopper Program: As if Sears didn’t already have enough products on its shelves, the retailer is going to give customers even more choices with its Marketplace on Sears.com. The venue enables individual merchants to list their products on Sears.com or even allow their goods to be picked up directly at Sears stores. And if you can’t find exactly what you want, Sears’ PersonalShopper Program will make suggestions along the way. Since Sears is simply skimming a bit off the top of third-party merchants, this deal makes more sense than the Craftsman idea. Except that SHLD stock  is no Amazon.com (AMZN), and has a long way to go if it wants to brand itself as an online marketplace instead of a brick and mortar retailer. Besides, in an already crowded online marketplace, we don’t need another one-stop-shopping site without a specialty. If Sears.com can’t carve out a niche, it’s 12 million products will have trouble finding an audience.

Sears Grocery Delivery Service: Sears has begun testing home delivery of groceries in New York City and the Hamptons area of Long Island, N.Y., and plans to begin testing in Chicago later this summer. The home-delivery service, which delivers groceries from Kmart locations, is an extension of MyGofer.com, a site that allows Sears and Kmart customers to order items online and pick them up at the store. This idea may work in dense urban areas — after all, even McDonald’s (MCD) delivers in NYC — but hardly makes sense on a larger scale. This test will assuredly fall flat in less populated areas since there simply isn’t the necessary volume to make such a venture profitable. Ill-fated tech startup Webvan found that out the hard way and has been a cautionary tale on Wall Street for the better part of a decade.

All may not be lost at Sears, of course. The stock showed signs of life earlier this year and edged up above $120 in a share in April, the first time since late 2007 that SHLD stock crossed this mark. But now the retailer is trading off about 33% from that high at around $81 a share. Shareholders who thought SHLD stock have been waiting eagerly for the company to regain the $100 mark with no avail, but a favorable earnings report could give Sears a lift. After all, the company has seen two upwards revisions to earnings estimates in the last month so it could perform well when its Q2 earnings hit Wall Street.

Of course, the current projection is for an -18 cent loss, hardly anything to cheer about. And considering Sears has fallen short of earnings estimates for each of the last four quarters, the company could be in for more trouble if it misses the mark again.

As of this writing, Jeff Reeves did not own a position in any of the stocks or funds mentioned here.

Tell us what you think here.


Article printed from InvestorPlace Media, https://investorplace.com/2010/06/sears-holding-corp-shld-stock-retail-sales-earnings-kmart-craftsman-kenmore/.

©2024 InvestorPlace Media, LLC